Economy needs stimulus of up to P4bn
Thalefang Charles | Friday March 27, 2020 18:56
On Tuesday, analysts at leading economic consultancy, Econsult said the outbreak of the pandemic was having a major, negative impact on the global economy, and, with some lag, on the Botswana economy. Econsult forecasts that the economy in 2020 could shrink by four percent, compared to initial forecasts of up to four percent growth.
Government recently closed borders to neighbouring states and 18 other countries, while also closing bars, all learning institutions, limiting gatherings and clamping down on public transport, as a way of protecting Batswana against the coronavirus.
The 18 countries with travel bans against them include top buyers of local rough diamonds and the major consumers of domestic high value tourism. Diamonds and tourism are amongst the country’s most important economic sectors in terms of contribution to budget revenues, employment and foreign currency. “The impact on GDP growth could be much worse than this, if, for instance, there are more business closures,” Econsult analysts wrote.
“This would result if people are required to work from home, if businesses such as factories are required to close, if firms cannot continue to operate due to shortages of inputs, or there are impediments to the movement of freight across the Botswana-South Africa border.
“In this case the short- term contraction in GDP could reach 20%.”
Econsult, a firm founded and led by former Bank of Botswana deputy governor, Keith Jefferis, also expects the pandemic to hit budget revenues via lower SACU revenues, as a result of pressure on regional powerhouse, South Africa.
Highly placed government insiders told BusinessWeek Cabinet was due to consider proposals across the most affected ministries for a consolidated stimulus package.
The ministries dealing with sectors such as trade and retail, agriculture, tourism and transport are at the forefront, as information is gathered to inform the stimulus plan.
“Right now government is looking at coming up with a very comprehensive plan to respond across all sectors,” authoritative sources confirmed to BusinessWeek.
“Information is being collected from sectors then it will be put on the table to see what is possible to be done.
“It’s about knowing the impact of the virus.
“The plan will go beyond the virus and see how support restorative activities around trying to regain and come back to normalcy.”
It is understood the Bank of Botswana, which manages the country’s reserves which are traditionally used to support economic crises, is already working with the Finance Ministry on the alternatives Cabinet will have to fund the stimulus plan.
By December 2019, the reserves stood at P65.2 billion, having fallen from P70.7 billion in November 2019.
Yesterday morning, the ministers of presidential affairs and trade, announced that government had established a P2 billion Relief Fund to be supported by donations in cash and kind from the private sector and other sectors of the economy.
“The Fund is to ensure that as government we have the resources we require for things such as test kits and others,” trade minister, Peggy Serame said at the Fund’s launch.
“Also, it will be used to help and support private sector companies who have been impacted by the coronavirus. We can all see that tourism most of them are not operating and the Fund will be used to help and support such sectors.
“We are not sharing the details of this support because we are still finalising in terms of what sectors to be helped, how, and the modalities.”
During a briefing last Thursday, President Mokgweetsi Masisi told BusinessWeek government was planning to keep the economy running.
“The specificities will emerge as the plan evolves and we fully analyse those sectors that are affected,” he said.
“Amongst the very obvious ones who have already felt the impact are the tourism cancellations in bookings and travel.
“In addition, the prohibitions we have put will affect those in that businesses like the small SMME driver who drops children in schools and those who run schools for return.”
He added: “It’s our business to analyse those and respond as best we can.
“I must underline that at some point, we all have to chip in and sacrifice. The private sector too will incur costs they didn’t anticipate.”
Econsult analysts suggested that besides a direct stimulus, interventions to help the economy and businesses could include tax deferrals, waiver of training levy, relaxation of bank loan repayments, wage subsidies and other measures around employment. In the tourism town of Maun and further into the Okavango Delta, various sources told BusinessWeek that tour companies, travel agents, camps and hotels were already shedding jobs in response to cancellations of bookings.
BusinessWeek has seen retrenchment notices for one lodge and a travel agent, all citing the coronavirus. Many businesses have started by axing temporary staff, while others are pressing workers to take pay cuts in an industry where most employees are non-unionised and work in remote areas far from representation.
Tourism giant, Wilderness Safaris, which has about 1,100 workers in Botswana and a portfolio of award winning camps in and around the Okavango Delta, confirmed the troubles facing the industry.
“This is the most serious challenge that the industry has faced, probably in its history and I think we must not downplay that,” Wilderness Holdings’ director, Derek de la Harpe told BusinessWeek. “The problem at the moment is that we don’t know how big this is and how long it’s going to last for. It’s a little bit difficult to know exactly what needs to be done.
“The industry is taking all the prudent measures that you would expect in these situations and as far as Wilderness is concerned, our number one objective is to protect all the jobs.”
He continued: “The longer it lasts, the worse the impact. It’s going to be essential for all the players in the industry to take early action as I gather most if not all, have, already including us.”
Environment, Natural Resources Conservation and Tourism minister, Philda Kereng, told BusinessWeek government was intimately aware of the sector’s challenges and was preparing a response.
“We are still in talks together with the Botswana Tourism Organisation, HATAB and other operators in the industry to give us evidence of the degree of impact on their sector,” she said.
“With that we will be able to advise ourselves on what should be done.
“We are impressing upon them that this is a crisis but we cannot expect that government will do everything, like saying ‘we have laid off our employees so government please pay them for us,’ we don’t know.
“The World Tourism Organisation gave us something like a guideline to say how businesses can be helped like with relaxation of taxation, perhaps around loan repairment and better terms.”
Meanwhile, local short-term insurers have reportedly clarified to clients that the coronavirus is not a claimable issue. While members of the sector were unavailable to comment on the record by Press time, various industry sources stressed that business interruption could only be claimed for if material damage was proven.
“The client would have to prove that the coronavirus caused material damage resulting in business interruption such as fire or something similar,” insiders said.
The longer end of the insurance spectrum was more positive, however, with Liberty Life Botswana managing director, Lulu Rasebotsa confirming that coronavirus deaths would be covered.